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Compromise Agreements

May 10, 2005

In Depth

COMPROMISE AGREEMENTS

Introduction

The Court of Appeal has held that compromise agreements must clearly identify the particular claims the employee waives by signing it. The use of generic expressions such as “all outstanding claims, whether statutory, contractual or otherwise” is not sufficient to compromise an employee’s statutory rights.

Background

Disputes about breach of contract can be settled by the parties entering into a simple agreement. However, most of the statutory claims that may be made by employees (eg unfair dismissal and discrimination) can only be settled by a COT3 (through ACAS) or a compromise agreement.

Various conditions, set out in statute, have to be satisfied for a compromise agreement to be binding, including that (i) it must be in writing; (ii) it must relate to particular proceedings; and (iii) the employee must receive advice from an independent adviser before signing it.

An issue often arises in relation to what is meant by the compromise agreement relating to “particular proceedings” – how particular does the agreement have to be?

Hinton v University of East Londonconcerned acompromise agreement which included a statement that it was “in full and final satisfaction of all claims in all jurisdictions (whether arising under statute, common law or otherwise) which the employee has or may have against the University …… arising out of or in connection with his employment with the University, the termination of his employment or otherwise including in particular the following claims which have been raised by or on behalf of the employee as being claims which he may have ..…”.

That was followed by a list of 11 kinds of claim (including unfair dismissal, race discrimination etc). This is a formulation that will, no doubt, be familiar to many employers.

However, the list did not include a claim of continuing detriment arising from “whistleblowing” (under section 47B of the Employment Rights Act 1996) – so, when Dr Hinton brought a complaint of continuing detriment on the grounds of whistleblowing (ie detriment other than dismissal), the question was – was it covered by the compromise agreement?

What has the Court of Appeal decided?

The particular statutory claims to which a compromise agreement relates must be clearly identified. This can be done either by:

Using a general expression such as “all statutory rights” or simply naming the statute (without identifying the relevant part of it) is not sufficient and will not compromise the employee’s claims.

The Court of Appeal also made 2 general observations about drafting compromise agreements:

the particular claims covered by the agreement should be identified by a brief factual and legal description; and

employers should not use standard form agreements which refer to all imaginable employment rights, irrespective of whether or not they are relevant to the particular circumstances – rather it should be tailored to the individual employee.

What does this mean for employers?

The claims that the employee is waiving should, ideally, be listed clearly and comprehensively in the compromise agreement.

Employers should take care to check ET1 forms and correspondence to make sure that all of the claims the employee has actually raised are clearly identified in the agreement.

If the employee has not raised any claims, or even if they have, the employer should think carefully of all the claims to which the particular circumstances could give rise - and identify them in the agreement as well.

The “catch all” phrases will still be useful to ensure that all contractual claims are covered by the agreement – but it is now clear that they will not “save” the employer if a statutory claim is accidentally omitted from the list of waived claims.

This means that the list of claims to be waived should be really quite full – but only as far as is sensible. The Court was not impressed by employers using only precedent agreements. However, it will be useful for employers, when putting a compromise agreement together, to start out with a comprehensive list of all of the claims that the employee could make - and then delete those claims that the employee almost certainly has no grounds to bring (e.g. discrimination on the grounds of pregnancy for a man).

We would be pleased to provide a comprehensive list of claims – please contact us!